While patent infringement is a familiar concern across the software industry, until now it has been difficult to reduce the complexities of litigation exposure down to an easily understandable set of figures. Some software companies now employ patent filing as a risk mitigation strategy and a few companies have also incorporated patent licensing into their core business strategy. While many of these inventions may not lend themselves to traditional commercial exploitation, some companies recognize that patents are assets in and of themselves. Other companies have a dramatically different patent position. For example, some companies have little to no patents. Although both types of companies are situated quite differently with regards to their IP portfolio, they both face similar threats from litigious patent holders looking to capitalize on the potential value of their assets.
Today, more patents are filed than ever before and predictably this has resulted in an increased frequency of patent litigation. Companies often are forced to recognize the dangers of an unanticipated law suit (or suits) from claimants ranging from well-known industry rivals to obscure holding companies potentially leading to millions of dollars in liability. While many companies may settle infringement actions rather than risk a large award from an unpredictable group of jurors or a judge, negotiated settlements frequently reach tens or even hundreds of millions of dollars. It is necessary then for companies to be able to anticipate and quantify their risk of infringement so they may plan for the worst while at the same time shoring up their asset portfolio to mitigate overall risk with respect to competitors. Risk mitigation is traditionally accomplished through in-licensing, patent acquisitions, or an increased effort to file patents concurrently or in anticipation of future product directions.
Currently, there are several ways to systematically assess a company's liability with respect to third-party patents. One such method finds that the strength of a patent (e.g., its potential for monetization through litigation) may be measured by a variety of characteristics, including the number of claims, the rate of forward citations, the number of prior art citations, and the number of continuations filed. A company may use these or other similar factors to determine the value of its portfolio as a whole by analyzing each patent in the portfolio. The resulting analysis can be compared to the portfolio analysis of other players in the industry to determine areas of relative strength and weakness. If a company's coverage is weak within an important area when compared to its competition, then it is likely more vulnerable to threats of patent infringement from its competition. Additionally, if a company's portfolio is concentrated in one key area, it may leave itself open to threats of litigation involving ancillary technologies that were not considered during strategic planning of the company's IP. In addition, certain patents within each technology area may be considered “key” patents in that they cover some essential feature that must be practiced by any company desiring to deploy that technology. Evaluating a company's portfolio this way may help determine areas of weakness, but offers little insight into the actual likelihood of litigation or the resulting damages and costs.
Other factors that may increase a company's exposure to patent litigation include growth rate and media coverage. A company that is experiencing a period of positive economic growth is generally more attractive as a litigation target due simply to positive media attention. Similarly, while a company whose innovations become topics of media interest may experience the positive effects of public adoration, or at least awareness, its technology becomes on the radar of litigious patent holders looking for an attractive defendant. Unfortunately, media coverage and public awareness are difficult to quantify and, by themselves, do not readily lend themselves to an infringement risk analysis.